Guest Post: The Great Equality in Today’s Security Acquisition Market

Barry Epstein by Barry Epstein | 10.21.2013

Barry Epstein, president of Vertex Capital, will be speaking about the acquisition market at CONNECT 2013.

126831367The acquisition market is one that ebbs and flows like a pendulum, sometimes swinging in favor of buyers and sometimes in favor of sellers. But rarely is it right in the middle, like a bubble on the carpenter’s level.  In the security industry, today’s acquisition market is right smack in the middle. 

I looked back at all the deals we transacted recently and found that both the buyers and the sellers each felt they got a great deal.  As we all know, the acquisition game is a zero-sum event, whereby every multiple of monthly recurring revenue or term that one side obtains is seemingly at the expense of the other.  So how can both sides feel they achieved such a win?

There are many answers to this question and I look forward to covering them at CONNECT 2013 in November.  Three reasons that heavily contribute to this equality are:

1)    The number of buyers in the marketplace is very large due to private equity.  The influx of private equity into the alarm industry means that a) buyers must acquire to achieve their growth goals and, therefore, b) buyers must be more flexible.

2)    Sellers are more organized than ever before.  Sellers are doing a better job of measuring and managing their attrition, making sure they own their phone lines, having contracts on all or nearly all of their accounts, etc.  This makes transactions much smoother and allows the buyers to pay a premium for the account base.

3)    There are more ways to sell than ever before.  In past years, a seller was at the whim of the buyer regarding the structure of the deal.  Most buyers wanted to buy the accounts and, if the accounts were in a market in which the buyer wanted to grow, perhaps take over the seller’s office.  Today, sellers can sell
a) accounts only, b) accounts + balance sheet items, or c) accounts + balance sheet items + jobs for the employees who helped the seller achieve such a high valuation.  This ability to choose from a menu of options allows more acquisitions to occur.  

When such favorable acquisition conditions occur, the results generate winners on both sides of the table.

Barry can be reached directly at bepstein4@sbcglobal.net or 972-740-2740.